(Solved): Externalities - Definition and examples An externality arises when a firm or person engages in an ac ...

Externalities - Definition and examples

An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is beneficial, it is called a ____ externality.

2. Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is beneficial, it is called a externality. Negative / Positive The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust the following graph to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should shift the demand curve to reflect the social value of consuming the good. (Note: MPC stands for marginal private costs, MSC stands for marginal social costs, MPB stands for marginal private benefits, and MSB stands for marginal social benefits.) (?) Supply Demand than the Demand Supply QUANTITY (Units) With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be socially optimal quantity. PRICE (Dollars per unit) Greater / Less Which of the following generate the type of externality previously described? Check all that apply. Your roommate, Dina, has bought a cat to which you are allergic. Simone has planted hundreds of flowers in her front yard, beautifying the neighborhood both for herself and for her neighbors. A microbiology lab has published its breakthrough in swine flu research. The city where you live has turned the publicly owned land next to your house into a park, causing trash dropped by park visitors to pile up in your backyard.